Tuesday, July 16, 2024
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Two attractive FTSE growth stocks worth holding for 10 years

by xyonent
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Growth stocks come in all shapes and sizes. I think they fall into a few different categories depending on what they do and what they offer. One example is a business that offers something unique or niche. Another is something very general or ubiquitous that is in high demand now and is likely to be in high demand in the coming years.

The two stocks I would happily buy the next time I have the opportunity fall into these categories. Games Workshop (LSE: GAW) and Central Asian Metals (LSE: CAML).

Games Workshop

Tabletop games are very niche and far removed from traditional video games. Games Workshop dominates their respective market through their popular Warhammer series. In fact, the company has grown into a multi-billion pound business through incredible organic growth.

The business was so successful that it eventually branched out into other areas, including video games.

With that kind of brand power comes incredible pricing power. The company’s operating margins are now approaching 40%. Additionally, revenue is growing at an average of 14.5% year over year. In my opinion, this is very impressive. However, I understand that the past is no guarantee of the future.

The stock is trading at a price-to-earnings ratio of 24x, which I don’t think is too high for one of the FTSE’s best growth stocks. However, it’s important to keep in mind that a high valuation does come with risks. Any negative news about trading or other issues affecting the company could cause the share price to fall. This is a risk worth keeping an eye on.

Finally, the dividend yield is 4.5% and has the potential to grow as the business grows, although we understand that dividends are never guaranteed.

As the name suggests, the company specializes in copper and zinc mining and owns its own mines in Kazakhstan and North Macedonia.

Demand for these types of metals is surging as they are key components of major infrastructure initiatives such as electric vehicles (EVs), the green revolution, etc. This is good news for companies and potential shareholders, potentially boosting revenues and returns.

The main risk for Central Asia Metals is the cyclical nature of copper prices. These fluctuations can cause performance to rise or fall and impact earnings. This external risk, along with the business’s lack of control over pricing power, makes me a bit uneasy.

A smaller but notable risk is that of operational issues at the mine site that could adversely affect production levels and volumes. If this were to occur, sales, earnings and investor returns could be adversely affected. However, it is important to note that this is a risk to all mining and commodity businesses.

Returning to the positives, the impressive dividend yield of nearly 9% makes this stock attractive. Furthermore, with a price-to-earnings growth ratio of 0.5, I believe this stock represents pretty good value for money. A ratio below 1 is often a sign that the stock is undervalued.

Overall, I think Central Asia Metals is poised for big growth and buying shares now and taking profits could be a smart move, which is why I’m keeping an eye on this stock.

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